ASX back to 6000 in 2019: Morgan Stanley

Morgan Stanley strategists have set their 12-month price target for the S&P/ASX 200 Index at 6000 points, counting on a gain of about 300 points in the next 12 months.

The optimism around returns is tempered by concerns about earnings growth for Australian companies and "four flashpoints": the impacts of de-leveraging after a housing market correction, trade tensions and related stimulus, the regulatory outcome of the Hayne royal commission, and potential policy changes after next year's federal election.

Morgan Stanley's 2019 outlook report, released this week, predicts a turning point in the global macroeconomic outlook next year.

Morgan Stanley argues "the deteriorating housing market is the key headwind" to GDP growth in 2019. James Alcock

The key reason for the poor performance of Australian equities versus the rest of the world in recent years has been "a lagging earnings cycle", which is expected to continue.

"When looking into 2019, we see little upside in aggregate earnings growth rates for our benchmark," the strategists conclude.

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The 6000-target for the ASX is "constructively cautious" and highly dependent on Australia being able to overcome the four "flashpoints".

The deteriorating housing market is one of the key concerns cited by the broker, as a weaker housing market feeds into bank revenues and consumer spending.

RBA on hold

The same goes for gross domestic product growth, in that depressed housing activity weighs on consumption and construction.

An annual growth rate of 2.8 per cent was recorded, missing consensus forecasts for 3.3 per cent growth.

Morgan Stanley sees the Reserve Bank of Australia holding interest rates for all of 2019, before targeting two rate hikes in the first half of 2020. Rates were kept on hold at 1.5 per cent at the final meeting of 2018 on Tuesday.

"The world still faces slower growth, higher inflation and tighter policy. But 2019 should see a turning point in this narrative, specifically in US growth, inflation and policy relative to the rest of the world," the strategists said.